Mesoblast Limited

Silviu Itescu - CEO and MD Paul Hodgkinson - CFO

Tanu Jain - Bell Potter Securities Jason McCarthy - Maxim Group Dennis Hulme - Edison

Hello, and welcome to this call. Our agenda today is to present our financial results, our operational update, and our upcoming timelines.

With me on this call is our Chief Financial Officer, Mr. Paul Hodgkinson.

Paul if you wouldn't mind taking the listeners to the financial results on Slide 6 please.

Thanks very much Silviu. If you turn to Slide 6 and I will go through the financial results.

So first things first, all numbers I'll call today are in U.S. dollars and I’ll cover the highlights.

So if we look at the highlights for the - both the three and the nine months period ending March 31, 2017, we basically did as we promised. We looked to operational streamlining and took out a significant proportion of our cost and you can see that in the second and third bulleted which is 24%, 16.4 million out of the cost base and similar percentage in the third quarter 5.1 million in order to fund the Phase 3 trial for CHF that we brought back inside the company.

And so if we look at the total burn of the company is the 73.4 million versus 74.3 million last year. So we managed to contain the increased cost with CHF within total burn of the company.

If I turn to Slide 7, how do we get those savings? The 16.4 million really came from our two main areas and that was within R&D and we took a reduction in the headcount which we previously announced through labor restructure and we moved cost of consultants and travel and we took back cost based down by approximately 28% headcount over the corresponding period in FY '16.

Within manufacturing, we undertook quite a significant reduction predominately we have sufficient material for all our current ongoing trials. And we also had a mild restructuring available within that and other cost containment areas that’s within trouble but we managed to save $11.1 million on that program.

And then lastly, the area of management and administration we managed to take another 5% of about $8 million and that allowed us to fund that additional CHF program. If we turn to Slide 8, let’s look at the cash position of the company.

So at the end of March, we had cash reserves, which is $69.1 million and that was after a successful institutional placement of 26 million shares raising just under 40 million before costs with our global institutional investments with some new institutional and sophisticated investors also in the mix. And then finally as we always have, we have an equity facility as you're, which we can use, its yet unused, but its available over the next two years, provided additional funds as and when we require.

And I think the company is in a very strong financial position. And now like to turn it back to Silviu for an update on the operational performance.

Thanks Paul. We could turn to Slide 10.

This slide is an overview of how science and how we are turning that into commercial products. We're using immuno-selective mesenchymal precursor cells highly purified homogeneous cells that have receptors that are able to respond to damage signals and inflammatory signals which are found in the tissues where these cells are placed.

So in response to these activating signals, our cells secrete a diverse variety of biomolecules which are then responsible for tissue repair and immunomodulation. The specificity of the triggering signals potentially reduces the likelihood of off target side effects and importantly the specificity of this triggering process in our cells results and this is based on preliminary clinical data in an optimal response in patients who have the greatest and most advanced disease state.

If you turn to Slide 11 is the underlying mechanism of action that underpins what we call a led Tier 1 product candidates and you can see here that the lead clinical programs are in very late stages of development. We have three programs in Phase 3 and one in Phase 2 amongst that Tier 1 product candidates have program.

Our program MPC-150-IM is in Phase 3 for advanced Class 3 heart failure and is also in patients with Class 4 heart failure with a left ventricular assist device implant. Our product candidate MPC-06-ID is in Phase 3 for chronic low back pain.

Product candidates MPC-300-IV has completed a Phase 2 trial in patients with biologic refractory rheumatoid arthritis and our most advanced product is our MSC-100-IV product for acute graft versus host disease. It has already been approved, launched and is currently generating revenues in Japan and in the U.S.

is in the final stages of a Phase 3 program. If we turn over now, I'd like to give you a detail of each of our Tier 1 product candidates operationally.

Slide 13 speaks to the MPC-150-IM potential target market. The heart failure epidemic is large and continues to grow and provides a very significant burden of illness and an unmet medical need in Western countries.

In the U.S. in particular as many 6 million people today suffer from chronic heart failure and the most advanced forms in Class 3 and Class 4 represent the greatest unmet need where despite existing therapies patients continue to have recurrent hospitalization and ultimately die.

Our objective is to develop a product candidate to target the tremendous burden in this advanced form of chronic heart failure. Slide 14 is a summary of data from our previously published Phase 2 clinical trial.

The objectives of that Phase 2 trial with two-fold. One was to identify but dose respond and an optimal therapeutic dose and secondly to identify the optimal target population that represents the most likely therapeutic benefit.

As you can see in this slide, this slide demonstrates the effects of a single injection of either low dose or mid dose or high dose of our cells by a catheter into the left ventricle in patients with Class II/III heart failure and a low ejection fraction. And what you see is that effect at six months demonstrated dose response in terms of reduction in systolic volume and reduction in diastolic volume relative to placebo with the most significant effect being seen at the 150 million, where the therapeutic benefit was approximately 25 to 26 millimeters of volume improvement over this period of time.

Systolic volume is a well-known predictor of adverse events over time as defined by recurrent hospitalizations and deaths. So we were particularly pleased to see this effect on volumes so-called surrogate endpoints at six months which identified an optimal therapeutic dose.

If you go to Slide 15 there was an important post hoc analysis performed in the study to ask a very important question which was would this therapeutic benefit of systolic and diastolic volumes be more likely to be seen in patients with less advanced disease or more advanced disease. The state of advanced disease was defined in this post hoc analysis on the basis of a threshold of systolic volume at baseline of more than or less than 100 ml and that's a threshold that previously has been well correlated with progressive decline and accelerated progression heart failure.

As you can see in Slide 15 in fact when patients were matched according to large systolic volumes, at baseline the therapeutic benefit of 150 million dose was even more enhanced and the placebo corrected delta as you can see in the table at the bottom last right hand column placebo corrected delta was double in patients who had systolic volume of more than 100 of baseline than the whole group overall demonstrating the fact that the patients with a more advanced stage of disease are an even therapeutic target for ourselves then the earlier stage of disease. Slide 16 further attests to the point I've just made and this looks at the end point which is the only endpoint that today has been accepted by the FDA for approval of any of any drugs in heart failure which is a time to heart failure major adverse cardiac event defined as either a heart failure related hospitalization or cardiovascular death.

On the left-hand side you can see the Kaplan-Meier curve for all patients in the study comparing the large – the highs does 150 million cells single-dose versus placebo demonstrating that over a three-year period there were no heart failure MACE events after a single high-dose injection. On the right hand side you can see the Kaplan-Meier of the patients selected on the basis of high systolic volume at baseline and here you can see the treatment benefit is even more exaggerated as a result of the control patients being at even greater risk of having a major cardiac event over a three-year period and yet the same patients treated with a single dose of our cells what completely protected against any heart failure MACE events over this period of time.

So these results were very heartening. They were published in the major cardiovascular journals circulation research and allowed us to move into Phase 3 clinical trial.

If you can go slide 17 this slide sets out the specifics of the Phase 3 trial design. The current Phase 3 trial targets patients with advanced heart failure as defined by Class 2b/3 disease with large baseline systolic volumes.

These are patients with the highest risk of recurrent hospitalizations HF-MACE events and mortality. As I've mentioned earlier these are precisely those patients where existing therapies do not work very well and the economic burden is greatest.

The way we are enriching for these patients is based on inclusion criteria which require patients who have had a heart failure hospitalization the previous nine months and/ or to have very highly elevated baseline NT-proBNP, a well-known biomarker for severity of disease. The trial's efficacy endpoint is a comparison of recurrent nonfatal heart failure major adverse cardiac events between 1:1 randomized controls and cell treated Class 2 or 3 patients.

In addition to that we're looking at terminal events such as death, implantable mechanical heart assist device or a heart transplant and these terminal events are being analyzed in relationship to the nonfatal recurrent heart failure MACE events in the trial. Place turn to the slide 18 for an operational update on this Phase 3 trial.

The trial is planned to enroll approximately 600 patients. In April 2017 we perform the pre-specified interim futility analysis of the trial's efficacy endpoint that was when 270 patients had been followed for at least three months.

We've now treated – we've now enrolled over half of the trial. After notifying the company of the results of the interim analysis the trial's independent data monitoring committee formerly recommended the trial be continued as planned because the interim trial was successful, interim analysis was successful.

In line with best practice for blinded Phase 3 clinical trials, the interim analysis data were only reviewed by the data monitoring committee. Mesoblast, the FDA and the trial investigators remain blinded to the group safety and efficacy data for this trial as well as the numerical results of the interim analysis.

The data monitoring committee will continue to review the ongoing data from the trial and will be reporting to us their results on an interim basis. In addition to this Phase 3 trial which is actively ongoing a second trial targeting advanced end-stage heart failure patients has progressed substantially.

This is a Phase 2b trial in patients with who received a left ventricular assist device due to the very severe end-stage nature of their disease. The study is sponsored and funded by the U.S.

National Institute of Health and is being conducted across the U.S. by the NIH funded Cardiothoracic Surgical Trials Network, CTSN.

This is 159 patient double-blind, placebo-controlled 2:1 randomized trial. It follows a previous preliminary pilot trial of 30 patients which was also published in circulation and the trial is evaluating the safety and efficacy of a single injection of MPC-150-IM the same product that is being evaluated by catheter in our other Phase 3 trial.

Here it's being injected directly into the native myocardium at the time of an implant of a less ventricular system. The objective of this study and its primary efficacy endpoint is to see whether patients who’ve received a single injection cells have an increased ability to sustain the circulation when the left ventricular system device is turned off; in other words whether they’re able to maintain systemic circulation without the assistance of an artificial heart.

That was a significant result in the earlier study in 30 patients. In addition the study will evaluate over a 12-month period overall survival, overall re-hospitalization rates and functional capacity improvements.

The enrollment of this study is expected to complete during this half and we expect topline results to be presented during the second half of 2017. Now I would like to move forward with an update on our inflammatory diseases portfolio.

This covers the product MPC-300-IV for multiple applications. Slide 21 speaks to the potential market in biologic refractory rheumatoid arthritis.

Rheumatoid arthritis is a disease that affects as many as 2% of general population and is the number one disease for which, biologics agents are currently being marketed. It’s a market of over $15 billion worldwide for the bio-logic agents and despite the substantial improvement in outcomes using these biologic agents, there continues to be a major unmet medical need for as many as 30% of patients who use biologic agents particularly TNF inhibitors and the reason for this is that as many as 30% of patients remain refractory to benefit from TNF inhibitors not biologic agents or cannot tolerate these due to risks of infectious complications and malignancies.

As a result of biosimilars entering into this market, we expect that the biologic refractory and anti-TNF refractory populations will continue to grow and will continue to represent a major unmet medical need. This is where I think where we think MPC-300-IV may potentially fill the treatment gap based on our preclinical data that suggests that our cells may have an impact on multiple cytokine pathways not to a single cytokine pathways and based on preliminary clinical data to date, we think that we have a unique approach to this disease with a durable outcome and without overt or any evident safety concerns.

If we go to Slide 22, you can see here that Phase 2 study design for MPC-300-IV and is headrest to treat patient population. A randomized placebo controlled double-blind study was performed evaluating a single injection of either a million cells per kilogram -- two million cells per kilogram of our MPCs, this is placebo in patients who have had an inadequate response to at least one anti-TNF agent and we have continued active disease.

The objectives of this study were to determine over the primary endpoint of 12 weeks whether there was -- whether the treatment with our cells were safe and secondarily whether there was evidence of a signal on benefit -- on benefits the disease activity as assessed by a number of parameters including the American College of Rheumatology Composite Clinical Responses Health Assessment Questionnaire for Function in a Desk 28 activity score of disease. Slide 23 summarizes the data that we have previously presented through the first 39 weeks of the study.

The safety profile through the first 12 weeks and over the entire 39-week period was comparable among the placebo and both MPC treatment groups have been no cell-related serious adverse events and this is a particularly important outcome given the published adverse event profile of other biologic agents. Importantly, both MPC doses outperformed placebo at week 39 in each of the ACR 20/50/70 responses as well as by median analysis of the ACR components.

Continuous variables including for function DAS28 for activity were used in line with the FDA guidance and use of these continuous variables at both the 12-week primary endpoint and throughout the week period identified the 2 million MPC per kilogram does as the most effective. The 2 million dose should the earliest and most sustained treatment benefit and even though the 1 million dose per kilogram showed an intermediate affect, it's clear the 2 million doses is preferable in future studies.

Given the serious nature of this disease we believe that MPC-300-IV is well-positioned to be developed as a regenerative advanced therapy to target this major unmet medical need. Next slide speaks to our product candidate for chronic low back pain MPC-06-ID.

Again, this represents a tremendous market opportunity and unmet medical need. There is a significant burden of illness for patients with degenerative disc disease who have failed all modalities that are conservative including steroid injection and opioids.

And as we all know the epidemic of opioid use is one that is a tremendous burden in Western societies and it has been recently addressed in the 21st Century Cures Act in the United States. Slide 26 is a summary of the endpoint being used in the existing Phase 3 trial as was obtained in the Phase 3 trial of 100 patients.

This was a randomized placebo-controlled blinded study of 100 patients evaluating one of two alternatives control arms against the low dose injection of MPCs directly into the intervertebral disc or a high dose injection of MPCs into the into intervertebral disc. These patients had at least six months of chronic low back pain unresponsive to all conservative modalities.

The endpoints evaluated were at least 50% improvement in pain and at least 15 point or 30% improvement in function at both 12 and 24 months. These are major responder criteria and the top of criteria that are used in surgical approaches to the intervertebral disease disc.

Looking at these parameters and you can see in this figure bottom right, the composite responder analysis per protocol at 12 and 24 months demonstrated that a single injection of our MPCs into the diseased intervertebral disc resulted in over threefold greater responses at 12 and 24 months then did saline injected controls and substantially greater also than the other control group using hyaluronic acid. On that basis the low does 6 million cell dose was judged to be the appropriate dose to move into Phase 3.

Slide 27 is a summary of the recently reported data of the durable 36 month outcomes from this Phase 2 trial. Using the intent to treat analysis which is in line with FDA guidance for the ongoing Phase 3 trial result of our 24 month period demonstrated 38% composite outcome in the 6 million MPC group versus 10% in the saline group.

Taking these patients through 36 months we observed that 82% of the MPC treated group who had achieved that primary endpoint of 24 months continued to maintain treatment success through 36 months. 86% of the MPC group who had met the pain responder criteria through 24 months continued to be pain responder of 36 months.

And 92% of the MPC group who had met the functional responder criteria at 24 months remained functional responder at 36 month. Moreover there were no differences in measurements of safety between cell treated patients and control of the 36 month.

Together these results demonstrate that a single injection into the intervertebral disc gives patients a very high likelihood of a durable response that is maintained for as long as 36 months following injection. And that this is very similar in the outcomes - the durable outcomes to what we've seen in cardiovascular disease in the heart failure Phase 2 study where a single injection into the myocardium gave us at least 36 month protection against heart failure hospitalizations or deaths and is similar to what was we are seeing in rheumatoid arthritis where single injection has resulted in at least a 39 week durable response.

And so these consistent durable responses that are being seen here are signals that need to be considered across multiple disease states and are consistent with an underlying mechanism of action that goes well beyond symptomatology and is suggestive of resetting the underlying disease itself. And as a result of these Phase 2 data, we continue to be confident about the Phase 3 program.

A 360 patient Phase 2 trial continues to recruit well across North American and Australia as is on track to complete enrollment by the end of 2017. And we’ve taken on board written guidance from the FDA that the use of the composite primary endpoint that I’ll describe is acceptable for product approval.

The thresholds for pain and function are acceptable to the agency, the time points are acceptable to the agency. And we look forward to completing recruitment and to presenting interim data in due course.

The final program that I wanted to touch on now on slide 29 is our program for acute graft-versus-host disease, our nearest term revenue product candidate MSC-100-IV for Steroid Refractory disease. This continues to be a major and serious life-threatening complication of a bone marrow transplant.

As many as 50% of patients who undergo allogeneic bone marrow transplant will get graft-versus-host disease and as many as half of those will be refractory to steroids. Particularly in children, mortality can be as high as 80% to 90% in Steroid Refractory GVHD.

And in adults, with liver and gut disease, the highest risk subset mortality resembles the pediatric mortality. So we’re targeting these very high risk, high mortality components of this disease with MSC-100-IV.

In Japan, this product has already received approval and has been launched by our partner in Japan, JCR Pharmaceuticals, and has been reimbursed by the insurance organizations in Japan at approximately up to 195,000 full treatment course. Our strategy for launch in the United States is on slide 31.

We are launching in the U.S. pediatric first to be followed by adults graft-versus-host disease.

In the pediatric disease segment, we are completing a multicenter single arm open label Phase 3 study in 60 children with Steroid Refractory graft-versus-host disease. The pre specified interim futility analysis of the trial's primary endpoint was successfully achieved in November 2016.

We announced that previously. And the FDA has granted us a fast track designation for this product to improve overall response rate in children with this disease.

Fast track designation has the potential to shorten the time to FDA approval through priority review and a streamlined rolling review process. We also have an open indication designation for this product which may additionally lead to potential commercial benefits after FDA approval.

For the adult population, we plan to target Phase 3 trial in high-risk, in the highest risks subset of patients with liver and gut disease where a previous study demonstrated a positive signal of efficacy. The endpoints in both children and adults with this disease are an overall response at day 28 with a key secondary endpoint being survival at day 100 amongst responders.

In the final slide, I want to touch on slide 33 which are the upcoming milestones and catalysts for 2017, grouped by T1 product candidates. For our MPC-150-IM heart failure product, our Phase 2b for patients with Class IV disease with an l-vent implant is scheduled to complete imminently by mid this year with six month follow-up being the designated duration of endpoint.

And therefore a Phase 2b data readout, we expect to see towards the end of this year. For the MSC-100-IV product, we expect to complete the Phase 3 trial enrollment and present topline data during the second half of this year.

For the MPC-06-IV product candidate, as I’ve mentioned earlier, the Phase 3 trial is expected to complete enrollment by the end of this year. And our MPC-300-IV product for inflammatory conditions will have 12-months readout during the third quarter of '17.

And of course we continue to be in discussions with a number of potential pharma partners and hope to be able to announce new corporate partnerships during the period. Thank you very much and would love to take some questions.

What I would like to ask you, Silviu, is what is your target enrollment rate in the heart failure trial? You disclosed that it's over half or over 300.

And at what sort of patient number would you contemplate maybe an accelerated strategy there?

That's a very good question. So we are substantially above 50% enrolled to date.

The interim analysis was performed a lot earlier than we had originally anticipated. The reason for that was strategic in nature.

We wanted to make sure that there was a signal in order to continue appropriate funding and resourcing for the program. So the interim analysis was performed when approximately 25% of total events had been obtained.

Remember that this is a trial that is event driven. Meaning we are targeting approximately 540 total events.

And at the outset of this trial, we anticipated that we would need about 600 patients who are either Class II or Class III in order to accrue that number of events. What we’re now seeing is as this trial is unfolding is in fact this is predominantly a Class III heart failure trial.

Majority of the patient are Class III. And those patients have a much higher hospitalization rate and a much higher mortality rate or terminal event rate than to Class II heart failure patient.

And as a result of that, we will continue to evaluate the number of events that are being seen, and it may be that the total number of patients may be reduced below the 600 mark as the trial continues to accrue Class III heart failure patients. So little bit early to say that.

And I think part of the process now is to have further dialogue with the agency and to have further discussions around precisely what the total number of patients is as we’re seeing a treatment benefit in the hardest to treat patient.

And secondly, I observed that we are getting close to the potentially the 52-week readout for the arthritis trial. Then we do estimate that to occur.

I would expect that occurs early in the third quarter. There was nothing particularly magical about week 52 of the patients.

The primary endpoint of the Phase 2 trial was 12 weeks, and we were particularly successful in evaluating the data in that first 12 week period. After the 12 week period, really patients are continued to be followed.

But there's less stringency around what additional drugs each treatment may get. Nonetheless, as we reported previously, through week 39, we saw a significant treatment benefit.

And I would hope that we are able to report similar consistency through 52 weeks. I think it is clear that we have a durable effect from a single injection, and we will be reporting the week 52 data early in the third quarter.

So lastly if I may just one more. Would you please maybe describe your strategy for the GVHD indication in Europe?

To what extent the usage of mesenchymal stent size, at least in academic centers in Europe became the standard of care in the Steroid Refractory population.

I think our strategy is to have European sides within our Phase 3 programs particularly in adults. We have extensive experience already in Europe as well.

And I would certainly take your point that there are many academic centers that use autologous MSCc in acute graft-versus-host disease. I think what we are aiming to provide is a very well-characterized homogeneous product with well-defined characteristics, lot to lot potency assays without variability, I think that's been the biggest issue in academic centers, the variability in autologous patient product.

So I think the data from both the pediatric and adult trials will be across both the U.S. and Europe, and will provide us with we hope concomitant approvals in both jurisdictions.

This is Derek in for Anupam. Thanks for taking the questions.

So that you’ve talked a bit in the past about how the 21st Century Cures Act opens up potential path to an accelerated approval for regenerative therapies. I’m just wondering if you can talk a bit about how we should be thinking about the age criteria to potentially recognize parts of the pipeline as regenerative therapy, and whether you’ve had discussions with the agency about the potential fallibility of that CHF program in the base of the - of a single Phase 3 study.

Thanks for that question. I appreciate it.

As a general rule, we believe that the 21st Century Cures Act provides a pathway that for regenerative medicine therapies that is parallel to the breakthrough designation pathways for non-regenerative medicine therapies in other disease states. Specifically the regenerative medicine component of the 21st Century Act allows for diseases or products that are targeting diseases with high mortality or high disease burden, and provides a pathway for, as you’ve mentioned, a single trial approval process, conditional approvals on the back of single well-designed Phase 3 trial as well as endpoints that are achievable in small data set including certain endpoint.

And I think that that's a reasonable way to summarize what the benefits are of this regenerative medicine pathway. You will note that our target population in heart failure is a continuum from Class IV to Class III, the sickest segment of patients with the highest risk of recurrent hospitalizations and mortality.

So we are specifically targeting those patients that would meet the criteria for regenerative medicine advanced therapy. And in fact is now president with at least one other company with an autologous cell based product having received designation for this target patient population.

We have effectively been waiting for two gating events. One is the positive interim analysis of the current Phase 3 trial in Class III patients, and the other is completion of the Phase 2b trial in Class IV patients which is imminent as I’ve said earlier that’s approximately 160 patients.

With those two pieces of data in hand, we expect to be having meaningful dialogue with the FDA over the short period in order to explicitly be in a position to come back to the market with a very specific pathway toward the potential accelerated approval pathway for this particular product, MPC-150-IM.

And maybe actually just picking up [indiscernible] question earlier. Just strategically thinking about accessing the EU market with the CHF program, I mean, right now it looks like most of your sites are - you are predominantly recruiting from North American side.

I am just wondering when you kind of look to potentially kind of boost the in non-introductory here, how are you thinking about potentially bringing on EU sites?

This is a really, really important question. So we specifically limited the study to date to the U.S.

for particular reason and that’s really cost containment. We needed to make sure that we saw a positive signal which we now have in the interim analysis before we expanded the trial into Europe.

Now that we've seen a therapeutic benefit at this early stage of the disease, you’re absolutely right, we need to accelerate by increasing the number of sites. To simultaneously have European approval, in the sense that we probably have to have up to 40% of patients being recruited in Europe, and so we’re currently planning, expanding this program into multiple Europeans sites.

Great. That’s very helpful.

Thanks for taking the questions.

Just a couple quick ones for me. We see MPC-150-IM, the Phase 2b study, assuming that it passes the criteria of 21st Century Cures Act RMAT designation even otherwise week 159 patients are double-blinded placebo controlled trial, do you think given the severity of disease you could use this as your registrational trial?

It’s a very good question, Tanu. This is about a sick population as you can get, right.

These are patients beyond Class IV. This is Class IV end-stage heart failure.

The mortality rate in these patients is 80% to 90% of 12 months if you do nothing. They must have an artificial heart, an LVAD implanted just to be alive and just to have the chance of being bridged to let say a transplant, right.

So this bridge to transplant is an indication in and itself for patients who are more than 65 and get it LVAD put in, they have it as it – what’s called a destination therapy because they are too old to have a potential transplant. The current market in the U.S.

is about 5000 LVAD implanted and of course we know that no more than 3000 patients undergo heart transplant. There are about 60,000 patients in Class IV heart failure today in the U.S.

So, the current options are very limited. The objectives of this trial are to see whether an injection of our cells into the left ventricle at the time of an LVAD placement improves cardiac functions sufficiently over a 12 month period to allow physicians to turn off the artificial heart and as a result of the cardiac, the native heart being able to maintain circulation in enhanced way.

That’s the primary end point. Secondary end point relates to overall survival and hospitalization rates, because even though patients may survive with these LVAD implants, the quality of life continues to be suboptimal, the recurrent hospitalizations, high evidence of inflammation and bleeding and infections complications.

So, if we see anyone of those outcomes being materially impacted by single injection of ours cells as in fact we saw in the Phase 2 trial published in circulation a couple of years ago where we had a twofold increase in the number of patients who were able to sustain the systemic circulation without LVAD, and a significant reduction in hospitalization rates. If we were to see that that, then I think is a dialogue to be had with the agency around a potential conditional approval on the basis of this single trial given that there are no other alternatives to this very sick patient populations.

So, let see how this trial involves. We expect to complete enrollment imminently and then we’ll be having those kind of discussions with the FDA.

You’re right. And just if I go back to the Boston Children’s Hospital trial, now that again trying to measure the same thing, where your cells can improve cardiac function in the pediatric population, can you give us a sense of timelines around when you might see data from that and whether you would have that in hand as well on your discussions with the FDA?

Well, that’s also very important study. It’s at the other extreme of life, of course, children with congenital heart disease with – who are born with a left ventricle that is hyperplastic and is unable to maintain systemic circulation.

They undergo a range of surgical procedures to correct this. But really at the end of the day only about 30% of children are able to end up maintaining a systemic circulation to left ventricular function.

So the objective here is, as you say, to see whether single injection of MPC-150-IM to the hyperplastic left ventricle is able to increase the number of patients who can undergo appropriate surgical procedures because they are able to then maintain the left ventricular circulation. The objective of the study is - its [pilot] in nature.

It’s a very rare condition. But from Mesoblast's perspective, not only are we hopeful of seeing a positive outcome, but it provides us with the kind of safety data in the pediatric heart failure population that is necessary in any event for full product approval to demonstrate that we have evidence of safety and efficacy all the way from end-stage elderly through to the early pediatric population.

This is an investigator-led study and I don't think I can give any specific time lines at this point in time.

And just one last one from me. Just on the rheumatoid arthritis trial.

Now if I recall for the 12-month data readout we are looking for some kind of imaging data as well. Can you just take us through that?

We are being collecting radiographic data at six months and we’ll be collecting it through 12-month. And we would hope that we can see evidence of differences in progression between the treated and control patients which will parallel the effect on underlying disease activity scores.

If we see that we’ll be extremely excited about it.

This is actually [Jay] for Kevin. Thanks for the question.

So with the Mallinckrodt agreement is there plans for any additional interim analysis on the back pain or graft-versus-host disease programs prior to the run out of the option period?

No. I don't think it will be any further interims prior to completion of the option period.

Does that address the questions?

Just a follow-up from me. Just on your partnership fronts starting with Mallinckrodt, can you just give us an update on how conversations are going there?

And also then potentially talk about what your strategies around CHF over 300 IV product in terms of looking for a partner at the time lines, the ideal time to partner et cetera?

Look we are in advanced discussions with Mallinckrodt as you would expect on the areas that are part of the option arrangement and those discussions are progressing well. I think there’s a good cultural fit between the two companies and I would expect to update the market in due course on how those partnership discussions are evolving.

We also continue to be in discussions on both, our heart failure program, heart failure product candidate as well as our rheumatoid arthritis product candidate with a number of major pharmaceutical parties. And those discussions are progressing.

We will also hope to update the market in due course. Our overall strategy of course is to have one or more partners for several of these lead product candidates because at the end of the day they all require substantial resourcing both to complete clinical development but more importantly to successfully launch and be in a position to have distribution channels and commercial capabilities.

And I think we are looking for potential partners who have strengths in the areas for each of these product candidates, as does Mallinckrodt in the areas of inflammation, immunology and pain.

I’m actually on for Jason Kolbert who is travelling. In the RA study, I know the 12-month data is coming up, how are you positioning Mesoblast for a pivotal study, like HUMIRA and the Biologics are really going out to 12-month.

How do you considered what your end point in the pivotal program would be? And are you thinking about the ability to redose since you are using only a single IV injection, infusion?

Look, these are critical questions. I think the way to think about the results that we presented is to compare them probably to rituximab in this space, in the biologic, TNF-refractory patient population.

Rituximab is used as an induction therapy with one or two doses I think within the first two weeks. And then demonstrated the primary benefit outcome at week 12 and a sustained benefit through 26 weeks.

And then for product use in commercial I think the clinicians are able to then assist disease activity in these very hard to treat patients, TNF-refractory patients and potentially redose after 26 weeks as they see fit based on a whole range of biomarkers. I think we’re seeing a very similar type of outcome when you consider the MPC data.

So that we’ve seen that a single induction therapy of 2 million per kilo has given us the best outcome through 12 weeks, has maintained a durable response through 39 weeks. And I think where we’re at right now is to consider potentially and even higher dose as induction or potentially an additional dose at some point down the track whether it’s a week 26 or week 39 or something like that.

And I think a Phase 3 program would have a design that would be somewhat adaptive that would evaluate higher induction doses, 2 million or higher at induction and potentially have an arm that looks at a repeat dose. But the primary end point is sufficiently to be 12 weeks as with other biologic agents and we would aim to have a durable effect at to least 26 weeks and probably beyond.

Okay. Great.

Thank you very much for taking the questions.

This is actually [indiscernible] on for Alethia. My first question is, can you give more detail on what’s your partnership discussion going now for the heart failure program?

And my other follow-up question, its probably early, but can you talk a bit about what’s your commercial manufacturing preparation and what are the efforts you have done there? Thank you.

Sure. Maybe I’ll take your second question first.

With respect to commercial manufacturing we’ve invested substantially in particular the MSC-100-IV product which is the most advanced, so that we have -- are ready for providing all the documentation in line with the clinical data for BLA filing. So we will be -- we will have the full commercial package on manufacturing in line with the clinical outcomes.

And we worked very hard with Lonza at their plant in Singapore to have a GMP-qualified and FDA-complaint process in time for commercial launch. For our MPC products we have produced sufficient quantities of product for all that clinical programs and depending on which ones move fastest towards marketing.

The back-pain product is probably the closest to commercialization. We are beginning to lock-in final product formulations for commercial processing.

Your first question was partnering discussions on cardiovascular disease. And again I think it's reasonable to say that we are in dialogue with a number of leading cardiovascular companies globally and regionally.

And I think the very important gating event was the interim analysis that we’ve just performed. And having seen a positive treatment benefit in this very hard to treat patient population Class III heart failure, this was more than just the futility analysis.

This was an interim analysis that was both for futility and to see whether there was a therapeutic benefit on the basis of a treatment to placebo delta. And having seen that I think those discussions will continue to progress in a favorable way.

We of course the second important factor here’s the LVAD trial, roughly 160 patients which is about to complete enrollment and how that gets positioned with respect to the agency as a potential launchable program. So those discussions with pharma companies in the cardiovascular space continue being particularly enhanced by the recent interim analysis and we’ll be updating the market in due course.

I'd like to follow up on your answer to the previous question, where you mentioned in the interim analysis, you're able to see therapeutic benefit versus placebo. Can you tell us a little more about that, what you saw there or what was seen there?

Look, I’m not able to go into the specifics, but there was a predefined threshold of benefit between treatment and placebo that was defined as the minimum requirement for continuing or discontinuing the trial and we were successful in achieving that.

Okay. So that was a predefined threshold, which has been past your review to median, they informed you that you created that threshold?

Correct.

Thanks very much. And also, are you able to give an update of when you expect recruitment to be complete in the heart failure Phase 3 trial?

Well, as I answered earlier, this trial was originally plan to enroll 600 patients and that was in line with the requirements to gather about 540 total heart failure MACE events. What we’re seeing that in fact we are recruiting patients who are sicker than we have previously anticipated more Phase 3 patients than – sorry, more Class III patients than Class II patients and those Class III patients had substantially higher rates of heart failure MACE events than Class II patients.

So it is possible the total number of patients may come down from 600 patients to say at this point in time. But nonetheless we’re aiming to complete enrollment during 2018.

Okay, 2018.

Second half of 2018.

And you mentioned potential expansion sites into Europe. Has that commenced?

Or is that just something that's in planning at the moment?

It’s something that’s being very actively planned as we speak.

Thank you very much for our listeners. I'm pleased to have provided an update on our financial's and operational highlights for the quarter.

Thank you very much.